Publications: The Petroleum Economics Monthly

Irrational Exuberance in Energy Markets:

Causes and Consequences (March 2016)

The oil price collapse that began in November 2014 should be over by now. No other post-World War II decline has lasted so long. Yet now many believe it will be years before prices return to the levels seen between 2004 and 2015. Indeed, the new hope for those who produce oil or natural gas may be "$30 by 30" as in 2030.

To many, "$30 by 30" likely sounds absurd. Of the twenty-five analysts surveyed by Consensus Economics in April, only three saw prices nearing $30 per barrel by year's end. Indeed, almost everyone who follows the energy industry or works in it expects prices to rise by 2017 if not before. The analysts polled by Consensus Economics, for example, see an average Brent price of $56 per barrel at the end of next year.

These views are almost certainly incorrect. The oil market’s structure has changed drastically since producers last intervened to stabilize prices in the spring of 2009. The new structure may make it impossible for one producer or a group of producers to regulate prices absent a military-type incursion to shut output. This means prices could drop lower—or rise much higher.

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